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Maintain a consistent position or risk the wrath of the law

4 April, 2002 | By Sue Lindsey

legal matters

People involved in disputes need to be consistent. An expert who has previously expressed a contrary view on a similar subject may have that put to them. A party that shifts its case can be asked about its changed stance. But, on an larger scale, when construction contracts go wrong, there are often more than two parties trying to sort out their difficulties. It is no good saying one thing to one and something else to another and hoping no-one will notice the difference.

Consider, then, the position of Jarvis, which carried out building work on 36 flats in London Docklands for Galliard. Jarvis subcontracted the flooring to Durabella. Galliard and Jarvis fell out, and Galliard terminated Jarvis' employment.

Jarvis started proceedings to claim sums it said it was entitled to, the 'Jarvis/Galliard claim'. Those sums included amounts claimed for Durabella's floors, which Jarvis said were fine. The case settled, and a sum was paid by Galliard to Jarvis. So far, so good. But there was a separate claim brought by Durabella against Jarvis, the 'Durabella/Jarvis claim'.

Jarvis defended that claim on the basis that Durabella's work was not acceptable. This gave Jarvis a problem of inconsistency. It found itself receiving a settlement payment from Galliard for a claim that had included flooring works, while declining to hand over payment to Durabella.

The Jarvis/Galliard claim had been settled by an agreement that spelt out that no part of the settlement sum paid by Galliard related to Durabella's work. It went further, stating that in calculating the settlement sum, Galliard had deducted its £162,460 counterclaim relating to Durabella's work. The judgment given in the Durabella/Jarvis claim last September was limited to certain issues. It did not deal with whether or not the floor was defective, but did explore Jarvis' right to withhold payment from Durabella on the basis of the agreement between it and the Jarvis/Galliard settlement.

Jarvis argued that it had a valid 'pay when paid' clause in its agreement with Durabella. Pay when paid clauses generally say that a main contractor will only pay its subcontractor when the main contractor is paid by the employer. The Housing Grants Construction and Regeneration Act (HGCR) outlawed such clauses in various instances. However, the Durabella/Jarvis agreement predated the Act. If Jarvis could show that the clause worked, in the absence of payment by Galliard for the flooring work (as apparently evidenced by the Jarvis/Galliard settlement agreement), Jarvis would not have to pay Durabella for the floor, defective or not.

His Honour Judge Humphrey Lloyd QC agreed that a pay when paid clause was incorporated into the Durabella/Jarvis contract. He concluded, however, that Jarvis could not rely on it. It was Jarvis' conduct that had brought to an end its arrangement with, and payment by, Galliard. Jarvis then failed to pursue its remedies against Galliard promptly. Jarvis could not take advantage of its own default to defeat Durabella's claim.

During the hearing it emerged that the terms of the Jarvis/Galliard settlement - which recorded that the sum did not include any amounts for Durabella's work, and that placed a figure on it - had been inserted solely at the request of Jarvis' solicitor.

The judge took a very dim view of this. He found that, as a result, the Jarvis/Galliard settlement agreement had no evidential value whatsoever in showing whether or not Jarvis had been paid for Durabella's work.

On the contrary, he concluded, it appeared that the terms inserted in the settlement agreement at Jarvis' request had been intended to mislead both Durabella and the court. It followed that even if Jarvis had been able to rely on its pay when paid clause, there was no acceptable evidence presented to the court as to what Jarvis had or had not been paid for Durabella's work.

The other party to a dispute will try to go behind the documents presented to it to ferret out the facts, and the court may not hesitate to listen. It is a slippery slope from including what may appear to be commercially sensible terms at one contractual interface to being told that to do so constitutes an attempt to mislead the court at a second. That is a serious finding that consistency and candour might have avoided.

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